Inflation News Sends Gold Soaring

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The ISM Services Index was released this morning and it came in at 48.4, which indicates only a slight contraction. While the mainstream media put the usual bullish spin on the news, it was actually nothing short of disastrous. One component was overwhelmingly responsible for the improvement from last month - Prices Paid. Prices Paid is a measure of inflation. It came in at an eye popping 63.1 in August versus 41.3 in July. The biggest increase in the Manufacturing Index yesterday was also Prices Paid (new orders was a very close second though, there were no close second in today's Service report). In the manufacturing report, prices paid was 65.0 in August versus 55.0 in July. None of the ISM reports are adjusted for inflation, just like most of the government's economic reports. In both cases, higher inflation as opposed to better economic activity can make the numbers look better. Financial media usually fails to mention this.

Spot gold reached $987 this morning. It is approaching once again the key $1000 breakout level. Spot silver almost reached $15.80, just below important resistance at $16. Gold has traded just over $1000 twice. The first time was in March 2008 and the second time in February 2009. This key level was reached at the end of gold's bullish seasonal period which ranges from August to February. This time the $1000 level will be reached at the beginning of the strong seasonal period. Expect silver to follow gold up. Once it breaks above $16, it will head toward $21.

While you would think that the U.S. dollar would nosedive on this news, it was down only slightly from yesterday's close of 78.38. After dipping just below the 78.33 breakdown level, it started rallying and is now up. This illogical trading of the dollar has been common since the Credit Crisis began. Why would traders rush to buy it, when the currency is constantly being debased by the central bank? They wouldn't, at least not voluntarily. Nations, including the United States, have a long history of trying to maintain the value of their weakening currencies by manipulating the market. The manipulation always fails in the end however.

Fed chair Ben Bernanke has said over and over again that there can't be inflation because there is spare capacity and slack in economic production. While he may be an expert in the U.S Depression, he apparently never studied hyperinflation where just such a scenario is common.
Bernanke has also been repeatedly wrong in everything he has said and done. For those who would like a video review of Bernanke's appalling record, click on the link below:
http://www.youtube.com/watch?v=HQ79Pt2GNJo

NEXT: No Recovery in Jobs

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Britain Points the Way to U.S. Economic Future

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

As of today, Great Britain is officially in recession, joining the U.S., Japan and Germany. Britain's GDP shrank 1.5% in Q4 2008, after shrinking 0.6% in Q3 2008. Those are at least the official figures, it is quite probable that the actual ones are even worse. Notable declines took place in the banking, retail, and manufacturing sectors (just like in the U.S.). The FTSE fell below 4000 and the pound dropped to 1.35 per U.S. dollar, a 23 year low, on the news.

Great Britain was once the premier economy in the world. The British pound was once the world's reserve currency. A rigid class system which guaranteed entitlement to those on top - similar to contemporary Wall Street in the United States - followed by socialist practices that offered entitlement to those on the bottom have over time eroded the country's economic dynamism. Early in the 20th century the capitalist free for all and innovation friendly U.S. began to assume economic preeminence after World War I. U.S. currency dominance was made official at Breton Woods in 1944 toward the end of World War II.

One of the most shocking stories in the history of technology illustrates quite clearly how Britain and U.S. attitudes differed in mid-century and why the U.S. became the post World War II economic powerhouse that it did. Both Britain and the U.S. developed early electronic computers for war time use. At the end of the war, the British government destroyed even the plans for the computers fearing they would fall into the hands of the Russians. The U.S. made the plans publicly available by publishing them, engendering one of the biggest growth industries of all time. The lesson of openness and transparency is currently being lost in the U.S. however with the Federal Reserve and Treasury engaging in significant and frequently secret manipulation of the financial system. In the long term this is only going to prove to be disastrous - although the short term results have been horrendous enough as is.

The response of the British prime minister, Gordon Brown, to the current British recession is that it is a result of global events. In case anyone has forgotten, Gordon Brown was the Chancellor of the Exchequer (equivalent to U.S. Treasury Secretary), who took the decision to sell half of British gold reserves in 1999 , when gold was around $260 an ounce, to buy among other things, U.S. dollars. Brown also has presided over a subprime crisis, 125% housing loans to people who could never pay them back were common, that is much worse than in the U.S. Unfortunately, while Gordon Brown is one of the most economically incompetent officials ever to run a major economy, he has plenty of company on the world stage these days. George Bush is certainly in the running for a close second. Many Japanese leaders in the last 25 years would be up there as well. Because economic idiocracies are common place in the world today, drastic action will be required to fix things. If the U.S. doesn't take appropriate action soon, it will be following Britain down the path of long term economic and currency decline.

NEXT: Unemployment Everywhere

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.